multi-generational approach to wealth management of exceptionally
affluent families, reports Charles Davis,
targeting everyone from grandparents to children for advice
to avoid complications when a new generation takes control of the
family business or trust. The inevitable sands of time mean that wealth
generated by one generation must be passed on to the next, a fact
of life that wealth managers know all too well.
Go deeper with GlobalData
It can be frustrating to manage the accumulated wealth of a family
for decades, only to face a retention nightmare when the matriarch
and patriarch of the wealthy family passes on and a new generation
arises to take the reins of the family business or trust.
Experts on wealthy family dynamics say that private bankers are
getting out in front of the issue these days, taking a
multi-generational approach to wealth management and growing ever
more clever in targeting the entire family, from grandparents to
children.
“I have seen a lot of emphasis on the multi-generational focus, and
it’s becoming a bigger trend, even for people with far fewer assets
than the family office set,” says Hannah Shaw Grove, principal of
HS Grove Private Wealth Consultancy, and author of Private
Wealth: Advising the Exceptionally Affluent.
“Part of it is that there is more money than there has ever been…
and there is enough history now among a lot of people with means
that they can look and see behaviours they really want to avoid
with their children.”
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By GlobalDataGrove says that private bankers are employing a wide variety of
tactics, from formal “family meetings” to workshops aimed at the
children of clients, all designed to bring the younger generation
to the table and include them in financial discussions before the
inevitable passing of the torch occurs. The not-so-subtle goal is
to bridge the generation gap before it is too late.
One important tool is philanthropy, a way to involve the children
in good works and engage them in the family finances without
overwhelming them with fiscal minutiae, Grove says.
“Philanthropy is much more important than ever before, as a way to
get the younger generation involved in meaningful work early on,”
she says. “The older generations want more involvement from the
younger generations, then they want them to have a seat at the
table, and they need it, really, for the family concerns to
continue.”
Russ Alan Prince, president of Prince & Associates, a firm that
tracks the habits of the rich, agrees that the multi-generational
approach is shrewd but added that trying too hard could
backfire.
“I know it’s cliché, but the very wealthy are different,” he says.
“They tend to be more intensely focused on the business than
everything else, and their children often are simply not their
first concern when it comes to their wealth, especially in tough
times like these.”
Price cites research that he and Grove conducted that showed that
happiness is not a universal priority for the mega-rich: just 85
percent of those with $10 million or more cited happiness as a
primary goal, compared to 99 percent of those with less
money.
“The parents may very well want the kids to grow up and have a
lifestyle like theirs, but sometimes the kids aren’t as motivated,”
Prince says, confirming a popular stereotype of the idle
rich.
“If you think that sending the kids off to a weekend retreat where
they learn a few buzzwords is going to solve your problems, then
you’ve got another thing coming.”
The wealthy are far more practical when it comes to their children
than they get credit for, he says. Even the mega rich (those with
more than $10 million) send more kids to public school than
private, though the numbers are far more even, 55 percent versus 44
percent. There are 49 million public school students in the United
States and 5 million private school kids.
Prince says that no matter how difficult it might be to reach the
children of the wealthy may be, “the whole issue of how to handle
the kids is a big deal.”
“There may be no more than 20-30 percent of wealthy families that
are interested in money issues as far as their kids are concerned
anyway, but for that percentage, it is a huge issue and one they
are really focused on.”
The problem is that many banks are doing things that, to Price,
make little or no sense from a bottom-line perspective.
“A lot of the banks are doing these retreats and workshops and the
like, with the idea that going to hang out in the woods for a week
will make everything alright,” he says. “Is this a key component?
No. The parents respond to these things, and the kids just want to
keep at it long enough to protect their stake. So much of this
comes in after the personalities have been set in stone, and the
dynamics are ‘I want the money. Next question’.”
Empirically, there is no evidence this helps, he said, adding that
the increased focus on the younger family members brings no new
business to the bank.
“When financial issues become paramount, then you must devote the
time and effort to maintain the business, and everything like the
kids gets tossed right out the window,” he said. “These people got
wealthy by being intensely focused on what they do, and in times of
economic distress, they are going to mind the business.”
Grove agrees, while adding that private bankers have little choice
but to try and reach out in a multi-generational way, or risk
watching accounts leave.
“They can’t simply sit by and watch as the next generation comes
along and takes that family wealth elsewhere,” she says. “They have
to try and come at it from a multi-generational approach and engage
them before the moment comes when a new set of decision makers is
in charge. Forming relationships throughout the family is
critical.”
STRATEGY
Advisory boards for client
quandaries
In uncertain economic times like these, it seems that financial
advisers need all the help they can get. A growing number of US
advisers are reaching out in a more formal way, forming client
advisory firms to hear from the investors themselves.
The number of US financial advisers hosting client advisory boards
is expected to more than double this year, a survey by Cerulli
Associates has just found. These advisory boards typically consist
of a hand-picked stable of an adviser’s top several clients, which
gathers two to four times a year to discuss what clients want from
the advisor.
It is as much a planning and strategy tool as anything else, and
Cerulli’s research indicates that it is a win-win proposition for
clients and firms alike.
The study found that fewer than 10 percent of the financial
advisors surveyed have client advisory boards now, but another 15
percent said they plan to implement one in the next 12
months.
The driving reason may be that client advisory boards drive greater
profit. Cerulli’s research showed that advisory firms that have
employed a board to coach them generated $861,289 in average annual
revenue, compared with $670,050 for planners that did not – a 28.5
percent gap in annual revenue.
Such revenue increases may convince more firms to turn to their
client base for advice, as well as to consider other help from
outside sources.
About 80 percent of the advisers who had a board said they were
satisfied with the results. It is not every day that a service with
such high satisfaction rates has such low penetration in the
market, but given the fact that advisory boards are used more for
refining an adviser’s existing business rather than for bringing in
new assets, it may come as no surprise that it gets overlooked in
the day-to-day bustle.
The word of mouth referrals from happy clients whose opinions are
heard may more than compensate by bringing in new business, the
report said.
In addition to client advisory boards, nearly half of financial
advisers have relied on outside advice – investment coaches or
consultants – to help improve their practices, and those who do so
generate significantly more income.
Even though the vast majority of advisers who have worked with
coaches or consultants (90 percent) report being very satisfied,
such services are not suitable for every firm, the Cerulli report
said.
“The only advisers who are going to have success with a coach or
consultant are those who want to take their business to the next
level,” said Cerulli analyst Katherine Wolf, one of the study’s
authors.
While those who have client advisory boards all reported
satisfaction with the results and the trend is on the upswing,
Cerulli senior adviser Scott Smith, author of that portion of the
report, said he doubted the incidence would rise above 20 percent
of the market.
Consultants are often used when an advisory firm wants to pinpoint
a solution for a particular problem, while coaches are hired to
analyse the firm’s overall investment strategy, the study
found.
